Sep 19 - Forbes

Michael Gordon has figured out how to get rich saving electricity.

With the mercury peaking at 96 degrees in New York's Central Park on an afternoon in late July, the city set a record for energy draw: 13 gigawatts. That is equal to the generating capacity of seven Hoover Dams.

During spikes like this, New York's Consolidated Edison buys expensive energy from peak-usage power plants, sending the wholesale spot price of a kilowatt-hour of energy--3 cents on a cool day--to $1 or higher. New Yorkers never notice the difference because the price they pay hardly varies even on the hottest day of the year.

The discombobulated pricing is a senseless waste--and it might make Michael Gordon rich. His $12.5 million (sales) New York energy services shop, Consumer Powerline, is New York's largest "aggregator" of electricity-savings contracts.

Twice a year Gordon signs up huge office tenants (Morgan Stanley and property manager CB Richard Ellis are two big clients) to volunteer in advance to shut off nonessential lighting or turn down a building's chillers a bit on heavy usage days.

When the New York State power grid is under stress, Con Ed calls in the favor with Gordon to ease demand--and pays 50 cents a kilowatt hour for the energy he saves. That's half the price of juice on the spot market. In addition, Con Ed writes Gordon and his clients a check based on the avoided cost of building more peak- usage power plants.

When summer heat and lightning storms threatened power lines near New York on July 27, Con Ed called, and Gordon's clients cut back 22 megawatts. Morgan Stanley got entirely off the power grid by shutting off its ticker in Times Square and drawing the energy it needed to run its office buildings and trading desks from banks of small gas-powered generators in its basement.

Such reductions stave off rate hikes for Gordon's clients. They saved $2.5 million in future electric bills that day. His growing customer base includes clients in California and Massachusetts, where deregulation has been sending retail electricity rates skyward. His bundle of energy-savings contracts, he says, is the equivalent of an 80-megawatt emergency power station. The cost of building the latter can run up to $100 million, while Gordon invested less than $300,000 to build Consumer Powerline.

"The power plant investors get about 15% returns on investment. Our returns are close to infinite," he says.